Multilateral Interchange Fees Under E.U. Antitrust Law: A One-Sided View on a Two-Sided Market?

Abstract

Many payment systems, whether set up for the purpose of handling remote payments (e.g., debit or credit transfers) or for face-to-face payments (e.g., debit, charge or credit card transactions), contain interchange fee arrangements. In card payment systems, the merchant/creditor’s bank often must pay a uniform fee to the cardholder/debtor’s bank for handling the payment. In addition, cardholders frequently encounter interchange fees when withdrawing cash from automated teller machines (“ATMs”) operated by another bank. In this three-party situation, the cardholder’s bank pays the fee to the ATM-operating bank. An interchange fee arrangement is multilateral when all banks participating in a given payment system–often hundreds or thousands of them– have agreed upon an interchange fee ex ante (i.e., when they join that system). The European Commission (“Commission”) has consistently taken the view that multilateral interchange fees (“MIFs”) restrict competition because they produce a “knock-on” effect in the bank-customer relationship. According to the Commission, this occurs because the bank that pays the interchange fee typically passes this cost along to its customers. In a credit card system like Visa International’s (“Visa”), the merchant’s bank (hereinafter the “acquiring bank”) will pay the MIF to the card-issuing bank and pass the cost along to the merchant. In its Visa International decision, the Commission concluded that, due to this “knock-on” effect, Visa’s original MIF for cross-border card payments restricted competition within the meaning of the first paragraph of Article 81 of the European Community (“EC”) Treaty (“Art. 81-1 EC”). However, pursuant to the third paragraph of Article 81 of the EC Treaty (“Art. 81-3 EC”), the Commission permitted Visa’s amended MIF because it: (i) contributed to “technical and economic progress;” (ii) enabled consumers to receive a “fair share of the resulting benefit;” (iii) was “indispensable to the attainment of these objectives;” and (iv) did not afford banks “the possibility of eliminating competition in respect of a substantial part of the products in question.” Put another way, the Commission believed that the amended MIF did not substantially lessen competition. This Article attempts to explain the Commission’s legal reasoning in Visa International against the somewhat idiosyncratic, dualist structure of Article 81 of the EC Treaty (“Art. 81 EC”). It comments on the Commission’s theory of harm and concludes that this theory is a narrow one, but that the Commission may develop, refine, or revise it following further fact-finding, which is currently underway within the framework of its sector inquiry.